Both sides await ruling after San Jose pension trial

SAN JOSE -- San Jose's pension reform is in a judge's hands now after a week of testimony in a closely watched trial pitting the city's ability to control ballooning retirement costs against the expectations and rights of its employees and retirees.

Judge Patricia M. Lucas is expected to take months to decide the Measure B case, after lawyers submit written closing arguments, and appeals are likely. But much is riding on the outcome.

For the city, some $68 million in yearly retirement savings is at stake -- $20 million already is budgeted for employee raises and staffing to restore services that were cut to pay pension costs. For Mayor Chuck Reed, who championed Measure B, which won nearly 70 percent voter approval in June 2012, its fate is key to his legacy and the political fortunes of his City Council allies.

San Jose Mayor Chuck Reed at the Measure B election party on June 5, 2012, in San Jose. (Dai Sugano/Staff)
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Dai Sugano
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"Unless it's implemented," said San Jose's lawyer, Arthur Hartinger, in opening statements to the judge, "the city's pension and post-employment benefit programs are unsustainable and out of control and threaten the city's ability to provide essential city services."

For city employees who already have taken 10-percent pay cuts to help the city weather its growing pension bill, a loss would saddle them with higher paycheck deductions for their retirement benefits. Retirees are fighting to restore extra pension checks and health care subsidies they argue the city unlawfully cut. And unions hope a victory will deter similar ballot measures elsewhere. Their lawyers argue that decades of California court decisions make it illegal for government employers to cut retirement benefits for current or retired workers.

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"The city has made an express promise," said John McBride, a lawyer representing several city employees, in opening statements. "Here is a benefit you will have an entitlement to earn."

The case drew keen interest from top city officials, retirees and union leaders who nearly filled the small, second-floor downtown courtroom during the hearings. Reed was in the courtroom most of the week, often on the edge of his seat during testimony, along with several of his council allies. Pension reform advocates also dropped by during the week.

For her part, Lucas wore a weary expression during the trial, chiding the lawyers about paperwork issues and witness availability. Several times, she questioned measure foes' lawyers about the relevance of their witness testimony or line of questioning. And, in her June 20 ruling rejecting the city's request to dismiss critics' charges before trial -- her only remarks on the substance of the case -- she was skeptical of the city's defense.

Not all of Measure B was at issue, at least in this trial. Unions and retirees weren't challenging the city's ability to reduce pensions offered to new hires since its passage. San Jose already has more than 100 new employees covered by a reduced pension plan, expects to have one in place for police later this year and is seeking one for firefighters through arbitration.

Unions also are trying to block Measure B with unfair labor practice charges through the state Public Employment Relations Board that argue it violated their bargaining rights.

During the trial, Measure B foes took aim at several key provisions. One was a provision that employees would have to contribute up to 16 percent more toward their pensions. Opponents argued the city is solely responsible for paying accumulated debt in San Jose's retirement plans. They called actuary Thomas Lowman, who testified to that effect, as well as Daniel Doonan, a labor economist who said that with the pay cuts and now Measure B, "the city wants it both ways."

"The pay cuts were already implemented to pay for the increased cost of retirement benefits, and at this point," Doonan said, "the city is coming back asking for higher contributions as well."

Measure B opponents also assailed the city's efforts to eliminate a benefit that paid retirees extra pension checks when retirement funds had high earnings.

And opponents also blasted the city's claim that it can lower its retiree health insurance subsidies by offering current employees a cheaper, high-deductible plan. The city argued the retiree health benefit is tied to the lowest-priced premium of plans offered any city worker, and that Measure B did not change this. But lawyers for police officers and firefighters argued their retirees' benefit is tied to a higher-priced and more generous plan offered to officers and firefighters.

The city offered testimony from City Auditor Sharon Erickson, whose 2010 audit showed the city's pension plans have reached unsustainable levels due to poor market returns, benefit increases and faulty assumptions. The city also called City Manager Debra Figone and Deputy City Manager Alex Gurza.

Figone testified about the cuts to police, fire, library, parks and other city services -- some 2,000 jobs eliminated over a decade -- to cover soaring retirement costs.

Gurza testified that employee unions had agreed to make extra pension payments to help the city close budget deficits in 2010, and that several offered to eliminate the extra pension check benefit. City lawyers argued that shows the city can require higher pension payments from employees and eliminate the extra checks, because the unions cannot waive a legally protected "vested right."

After the hearings, Robert Sapien, the San Jose Firefighters union president and a plaintiff in the case, said he felt employees had presented a solid case, and noting that Reed is seeking a state ballot measure to soften pension protections, added that "it doesn't seem like they have a lot of confidence."

Reed said afterward that the city's lawyers and witnesses "did an excellent job" and presented a case that was "clear, straightforward and understandable."

What's at stake:San Jose is seeking some $68 million in annual savings from retirement reforms related to Measure B. The city already has assumed $20 million in savings from a few retirement changes: eliminating extra bonus pension checks and reducing the retiree health plan subsidy.Employees hope to avoid extra payments toward their pensions. Retirees are seeking continuation of extra pension checks and higher health plan subsidies.The legal argument:San Jose argues its city charter reserves the right of voters and their elected officials to make changes to city retirement plans. San Jose says the city can legally raise employee retirement contributions and that workers have agreed to them before. San Jose says its retiree medical benefit is tied to whatever the lowest-premium plan is offered to employees.Employees and retirees argue decades of California court decisions have established that once an employee is hired that worker has a "vested right" the retirement plan in place at the time that cannot be reduced.The decision:Judge Patricia M. Lucas is not expected to rule for months, after each side submits written closing arguments. The losing side is likely to appeal the decision.More information:City link to litigation documents: http://www.sanjoseca.gov/index.aspx?NID=3182City link to trial transcripts: http://www.sanjoseca.gov/index.aspx?NID=3944